In a recent ruling in People v. E&D Parts Supply, Inc. and Margaret L. Uy, GR No. 259284, January 24, 2024 (published on January 24, 2025), a Supreme Court decision reiterating long-standing doctrine on the effect of acquittal in tax cases), the Supreme Court reaffirmed a fundamental rule in Philippine tax law: the acquittal of an accused in a criminal tax case does not extinguish the taxpayer’s civil obligation to pay assessed taxes. The case involved criminal charges for alleged tax evasion filed after the Bureau of Internal Revenue discovered discrepancies between declared income and actual income earned. Although the accused was acquitted due to the prosecution’s failure to prove willful intent beyond reasonable doubt, the Court held that such acquittal did not nullify the underlying tax assessments issued by the BIR.
Tax liability, the Court explained, arises by operation of law and becomes due once a taxable event occurs. Whether the BIR succeeds or fails in proving fraudulent intent in a criminal case does not affect the existence of a civil obligation to pay taxes validly assessed under the National Internal Revenue Code. The prosecution’s inability to prove guilt beyond reasonable doubt—a standard unique to criminal proceedings—cannot be equated with a finding that no tax is due. As long as the assessment was issued in accordance with law and was not properly disputed through administrative or judicial channels, the BIR retains full authority to collect.
In the case, the BIR had issued deficiency assessments for income tax and VAT based on audit findings, which the taxpayer contested. When the criminal charge was dismissed, the taxpayer argued that the civil tax liability should likewise be deemed extinguished. The Supreme Court disagreed, stressing that criminal prosecution for tax evasion is independent from the government’s administrative and civil processes for assessment and collection. The failure of the criminal case did not invalidate the assessment, nor did it relieve the taxpayer of the obligation to settle the deficiencies that arose from the taxable transactions.
The Court traced this principle to earlier jurisprudence, including landmark cases such as Ungab v. Cusi, Commissioner of Customs v. Court of Appeals, and People v. Malabis, all of which consistently held that acquittal does not bar the government from pursuing civil tax liability. The only exception is when the court expressly declares that the accused did not commit the act or omission charged, thereby negating the existence of a taxable event—an exception the Court emphasized is extremely rare and not applicable in the present case.
This ruling carries significant implications for corporate officers, business owners, and individual taxpayers. Many assume that a dismissal or acquittal in a tax-related criminal case effectively resolves all issues with the BIR. The Supreme Court’s decision dispels this misconception by clarifying that criminal liability and civil tax liability proceed on separate paths. A favorable criminal outcome does not cancel a tax assessment, and taxpayers must continue addressing the civil aspect through proper administrative protests or judicial remedies. Failure to do so may result in the assessment becoming final, executory, and demandable despite the criminal case being dismissed.
By reiterating that taxes are the lifeblood of the government and that the State’s right to collect cannot be defeated by the outcome of criminal litigation, the Court has once again reinforced a core doctrine of tax enforcement. This decision serves as a reminder for taxpayers to take civil assessments seriously and to seek professional guidance early, as resolving a criminal case alone is never sufficient to eliminate tax exposure.
This guide provides a general overview of the above transactions at the time of writing only and is not intended to be a comprehensive legal advice. This should also not be taken as an opinion on the topic. For more details and information, you may coordinate with any GVES Law Partner regarding the matter.
Atty. Ludanielle N. Legarde is a Partner of GVES Law.